By moving forward with a crypto investment option that has long been explored, and stalled, in the United States, Japan could open up a major institutional investment option and take a large stride in adoption.
What Is a Crypto ETF?
A cryptocurrency ETF is a financial security designed to track the price of a cryptocurrency. By purchasing shares in a crypto ETF, investors earn money when the value of the cryptocurrency that the ETF tracks increases.
A crypto ETF could track any type of cryptocurrency, although most efforts to create crypto ETFs to date have centered on tracking bitcoin. (It’s unclear which cryptocurrencies the Japanese government might consider for ETFs.)
Why Would You Invest in a Crypto ETF?
Cryptocurrency ETFs offer investors several advantages. One is that they make it possible to invest in cryptocurrency without having to go through the complicated process of buying crypto directly. Funds invested in a crypto ETF are also potentially easier to liquidate than actual crypto, and crypto ETFs can be sold short, creating a potential profit opportunity that is not possible when buying crypto directly.
Finally, because ETFs in general are a common, widely used financial instrument, they are easier for some investors to understand and integrate into broader financial portfolios.
Status of Crypto ETFs Around the World
So far, efforts to launch crypto ETFs in most countries have been unsuccessful, due largely to reluctance on the part of regulatory agencies to approve them. In the United States, the U.S. Securities and Exchange Commission, or SEC, is still reviewing a bitcoin ETF proposal that appeared last summer.
Crypto ETFs have been approved in Canada and Switzerland (technically, the latter is classified as an “exchange-traded product,” or ETP, which may also make it an ETF), but they still remain outliers.
Why a Crypto ETF Would Matter in Japan
The Japanese government’s reported interest in approving crypto ETFs is significant not just because few other countries have approved similar proposals, but also because it is an about-face on other recent decisions by Japan regarding the crypto market.
Last year, the country banned financial derivatives based on crypto. It also signaled plans to regulate ICOs more strictly. The moves were a response in part to the massive attack early last year on Tokyo-based Coincheck, which may have been prevented with stricter regulation of the company’s operations.
Thus, the Bloomberg report about crypto ETF approval in Japan suggests that there is good news for Japanese crypto investors in the new year, despite a shaky 2018. The move could also encourage the growth of crypto ETFs around the world.